Canadian Mortgage Rates
The mortgage market may seem a little bit overwhelming, especially for first time home-buyers. What may sound like a really good deal, could turn out to be your worst financial decision ever. Canadian mortgage rates vary; not only by the interest rate, but also by terms and conditions. That’s why it is very important to compare mortgage rates.
One of the first questions you need to ask yourself is whether you are better off with a closed or an open mortgage. The main difference between the two is that the closed mortgage usually comes at lower rate and for that reason, closed mortgages are usually more popular. The disadvantage of the closed mortgage is that you can only pay a certain amount of payments each year, you cannot pay the entire principal before the term agreed upon when signing the mortgage agreement. If you do so, you are faced with financial penalties; e.g. an additional 3-month interest charge.
An open mortgage does have a higher rate than a closed mortgage, however; you are allowed to pay off your entire mortgage at any given time, you can make as many additional payments a year as you please. Even if you are going to end up paying the entire mortgage up before the set date there is no consequences for that. It is usually a better option for people who are expecting a sudden massive cash flow in the nearest future.
Another dilemma is deciding between fixed and variable mortgage rates. Fixed mortgage rates are more popular, it provides stability as the rate remains the same through every single payment. The economy does not affect the rate at all. Variable mortgage rates can change over time, the economy can easily affect the payments and you may be faced with paying more than you originally prepared yourself for. Plus, you may lose some sleep over the unstable payment amounts.
It is also important to think of your monthly prepayment options, that is an option to add a certain percentage to your monthly mortgage payment to pay it off faster. I.e. if you pay $1500 each month towards your mortgage, your monthly prepayment allowance is $375. Should you be able to pay more monthly, you can increase the amount and finish paying your mortgage sooner than you originally assumed.
Monthly prepayment option should not be mistaken with lump sum prepayment allowance which is a separate entity. Lump sum prepayment allows you to you up to 25% of your mortgage on one payment that you do yearly. You cannot pay more than 25% of your mortgage during one year, that means that paying off your mortgage will take at least 4 years.
Even though picking your mortgage may seem challenging, there is a painless way of doing it. It does take a whole lot of research to be done. However, if you want to feel more comfortable you can always have a professional help you. Mortgage brokers are experts in Canadian mortgage rates and can provide you with the best possible offer.